AG ISA (NZ) 700 (Revised) Forming and reporting an opinion Issued 03/17 Office of the Auditor-General 3 - 4800 AG ISA (NZ) 700 (REVISED) THE AUDITOR-GENERAL’S STATEMENT ON FORMING AN OPINION AND REPORTING ON FINANCIAL AND PERFORMANCE INFORMATION Contents Page Introduction 3 - 4801 Scope of this Statement 3 - 4801 Application 3 - 4801 Objectives 3 - 4801 Definitions 3 - 4802 Requirements 3 - 4802 Presentation of findings arising from the annual audit 3 - 4802 Expression of the opinion 3 - 4802 Use of template audit reports issued by the OAG 3 - 4803 Signing of audit reports 3 - 4803 Dating of audit reports 3 - 4803 Independence and the disclosure of relationships with, or interests in, the public entity in the audit report 3 - 4803 Audit reports to be referred to the OAG 3 - 4804 Translation of audit reports 3 - 4804 Reporting to the OAG 3 - 4805 Application and other explanatory material 3 - 4805 Presentation of findings arising from the annual audit 3 - 4805 Expression of the opinion 3 - 4805 Use of template audit reports issued by the OAG 3 - 4806 Dating of audit reports 3 - 4806 Independence and the disclosure of relationships with, or interests in, the public entity in the audit report 3 - 4807 Translation of audit reports 3 - 4808 Appendix 1 – The Auditor-General’s Opinions Review Committee (ORC) 3 -4809 Appendix 2 – Unmodified model audit report for a public entity applying a fair presentation framework 3 - 4814 Appendix 3 – Unmodified model audit report for a public entity applying a compliance framework 3 - 4820
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AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4800
AG ISA (NZ) 700 (REVISED)THE AUDITOR-GENERAL’S STATEMENT ON
FORMING AN OPINION AND REPORTING ON FINANCIAL AND PERFORMANCE INFORMATION
ContentsPage
Introduction 3 - 4801 Scope of this Statement 3 - 4801 Application 3 - 4801
Presentation of findings arising from the annual audit 3 - 4802 Expression of the opinion 3 - 4802 Use of template audit reports issued by the OAG 3 - 4803 Signing of audit reports 3 - 4803 Dating of audit reports 3 - 4803 Independence and the disclosure of relationships with, or interests in,
the public entity in the audit report 3 - 4803 Audit reports to be referred to the OAG 3 - 4804 Translation of audit reports 3 - 4804 Reporting to the OAG 3 - 4805
Application and other explanatory material 3 - 4805 Presentation of findings arising from the annual audit 3 - 4805 Expression of the opinion 3 - 4805 Use of template audit reports issued by the OAG 3 - 4806 Dating of audit reports 3 - 4806 Independence and the disclosure of relationships with, or interests in,
the public entity in the audit report 3 - 4807 Translation of audit reports 3 - 4808
Appendix 1 – The Auditor-General’s Opinions Review Committee (ORC) 3 -4809 Appendix 2 – Unmodified model audit report for a public entity applying a fair
presentation framework 3 - 4814 Appendix 3 – Unmodified model audit report for a public entity applying a
compliance framework 3 - 4820
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4801
Introduction
Scope of this Statement
1. This Auditor-General’s Auditing Statement:
(a) establishes the Auditor-General’s requirements in relation to ISA (NZ) 700
(Revised): Forming an Opinion and Reporting on Financial Statements (ISA
(NZ) 700);1 and
(b) provides additional guidance to reflect the public sector perspective.
Application
2. Compliance with this Statement is mandatory for Appointed Auditors who carry out
annual audits on behalf of the Auditor-General. This Statement requires compliance
with all of the requirements of ISA (NZ) 700, except to the extent that this Statement
provides otherwise. Where a conflict between this Statement and ISA (NZ) 700
exists, the requirements of this Statement shall prevail.
3. This Statement applies to audits of financial statements and/or performance
information which has been prepared for reporting periods ending on or after 15
December 2016.
4. The Auditor-General determines the standard format and wording for audit reports on
the financial and performance information required to be prepared by public entities
for audit. In doing so, the Auditor-General takes into account the objectives and
requirements of the International Standards on Auditing (New Zealand) that are
relevant to the audits of public entities,2 together with the requirements of the Public
Audit Act 2001, to ensure appropriate reporting to readers.
Objectives
5. The objectives of the Appointed Auditor are to:
(a) form an opinion on the financial and performance information presented by
the entity that is required to be audited, based on an evaluation of the
conclusions drawn from the audit evidence obtained; and
1 The ISA (NZ) auditing standards are scoped so that they apply to audits of “historical financial information”.However, for the purposes of the Auditor-General’s auditing standards and statements, all references to “historical financial information” should be read as the audit of “historical financial and historical performanceinformation”.
2 Paragraph 18 of ISA (NZ) 200.
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4802
(b) report any other material matters in the audit report; and
(c) express that opinion clearly through a written report.
Definitions
6. For the purpose of this Auditor-General’s Auditing Statement the defined terms have
the meanings attributed:
(a) in the Glossary of Terms issued by the New Zealand Auditing and Assurance
Standards Board (the NZAuASB glossary) of the External Reporting Board
(although where a term with a specific meaning in the New Zealand public
sector differs from the NZAuASB glossary, the New Zealand public sector
definition shall prevail); and
(b) in the Auditor-General’s Glossary of Terms.
Requirements
Presentation of findings arising from the annual audit
7. Audit reports issued on behalf of the Auditor-General shall present the findings of the
annual audit at the beginning of the audit report. (See paragraphs A1 – A2)
Expression of the opinion
8. Audit opinions issued by, or on behalf of, the Auditor-General on financial and
performance information presented in accordance with a fair presentation framework,
shall be expressed in the form of a dual opinion that separately opines on:
(a) the fair presentation of the audited material; and
(b) whether the audited material complies with generally accepted accounting
practice in New Zealand and has been prepared in accordance with [the
applicable financial reporting framework]. (See paragraphs A2 – A5)
9. The audit opinion contained in audit reports issued by, or on behalf of, the Auditor-
General on financial and performance information presented in accordance with a fair
presentation framework, shall use the words “present fairly, in all material respects”.
10. Audit opinions issued by, or on behalf of, the Auditor-General on financial and
performance information presented in accordance with a compliance framework (such
as a non-GAAP standard), shall be expressed using the words:
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4803
“In our opinion, the accompanying financial statements and performance information
have been prepared, in all material respects, in accordance with [the applicable
financial reporting framework]” (See paragraph A6)
Use of template audit reports issued by the OAG
11. The Appointed Auditor shall use audit report templates issued by the OAG as the
basis for all audit reports signed on behalf of the Auditor-General. The Appointed
Auditor shall consult with the OAG on any departures (other than those that are trivial
or inconsequential) from the format or style of any audit report template issued by the
OAG. (See paragraph A7 and Appendices 2 and 3)
Signing of audit reports
12. All audit reports, except those audit reports where the Auditor-General directs
otherwise, shall be personally signed by the Appointed Auditor. However, the Auditor-
General reserves the right to sign any audit report after giving due notice to the
Appointed Auditor.
Dating of audit reports
13. In addition to paragraph 49 of ISA (NZ) 700 (Revised), the audit report shall not be
dated before:
(a) the date on which the statement of responsibility or equivalent statement is
signed; or
(b) the date of the written representation, as required by AG ISA (NZ) 580 and
ISA (NZ) 580. (See paragraph A8).
Independence and the disclosure of relationships with, or interests in, the public entity in the audit report
14. The Appointed Auditor shall disclose in the “Independence” section of the audit report
whether their Audit Service Provider (ASP) has any relationship with or interests in
the public entity. (See paragraphs A9 – A12).
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4804
Audit reports to be referred to the OAG (See Appendix 1)
15. The Appointed Auditor shall consult with the Accounting and Auditing Policy team
before issuing an audit report:
(a) if the Appointed Auditor seriously considers issuing an audit report containing:
(i) an emphasis of matter or other matter paragraph in relation to an
uncertainty over the use of the going concern assumption;
(ii) an emphasis of matter or other matter paragraph in relation to a matter of
efficiency and effectiveness, waste, or a lack of probity or financial
prudence;
(iii) a disclaimer of opinion; or
(iv) an adverse opinion.
(b) if the Appointed Auditor seriously considers including an emphasis of matter or
other matter paragraph in that audit report where the OAG has not provided
direction or guidance; or
(c) if there is a technical matter related to that audit report that the Appointed
Auditor is unsure about.
16. The Accounting and Auditing Policy team will request the Appointed Auditor to prepare a
submission to the Auditor-General’s Opinions Review Committee (the ORC) for the
circumstances in paragraph 15 above, unless there is clear precedent supporting the
proposed audit report. (See paragraphs 1.8 and 1.9 of Appendix 1).
Translation of audit reports
Translation of audit reports into M ori
17. is an official language of New Zealand. An audit report in M ori shall be
provided by the Appointed Auditor if requested by the entity’s management. (See
paragraphs A13 – A15)
18. If an audit report in English shall
also be provided.
Translation of audit reports into another language
19. If the Appointed Auditor is requested to provide an audit report in a language that is
not an official language of New Zealand (such as Niuean or Tokelaun), they shall
contact the OAG for a translated audit report if that is deemed necessary.
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4805
20. If an Appointed Auditor issues an audit report in a language other than English, an
audit report in English shall also be provided.
Reporting to the OAG
21. The Appointed Auditor shall forward to the OAG a copy of all audit reports issued, in
keeping with the requirements set out in AG-1: Reporting to the OAG.
***
Application and other explanatory material
Presentation of findings arising from the annual audit (See paragraph 7)
A1. Paragraph 43 of ISA (NZ) 700 (Revised) requires the auditor’s report to clearly
separate the results of the “audit of the financial statements and performance
information” from the auditor’s findings on “other legal and regulatory requirements”.
Under paragraph 43, the auditor’s findings on “other legal and regulatory
requirements” are required to be reported in a separate section of the auditor’s report
following the components of the auditor’s report on the “audit of the financial
statements and performance information”. The Auditor-General has departed from the
requirements of paragraph 43 of ISA (NZ) 700 (Revised) by requiring all findings
arising from the audit to be reported at the beginning of the audit report. This means
that auditors’ reports issued by, or on behalf of, the Auditor-General will report the
auditor’s opinion at the beginning of the audit report together with any other material
findings arising from the annual audit. The findings will be categorised under separate
sub-headings depending on their nature at the beginning of the auditor’s report.
A2. The Auditor-General presents the auditor’s opinion, and other findings arising from
the audit, at the beginning of the audit report because this is the information that is of
most importance to the reader of the auditor’s report.
Expression of the opinion (See paragraphs 8 – 10)
A3. Paragraph 25 of ISA (NZ) 700 (Revised) requires the auditor’s opinion on financial
statements prepared in accordance with a fair presentation framework to use one of
the following phrases, which are regarded as being equivalent:
(a) In our opinion, the accompanying financial statements present fairly, in all
material respects, […] in accordance with [the applicable financial reporting
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4806
framework]; or
(b) In our opinion, the accompanying financial statements give a true and fair
view of […] in accordance with [the applicable financial reporting framework].
A4. The Auditor-General has departed from the requirements of paragraph 25 of ISA (NZ)
700 (Revised) by requiring audit opinions issued by, or on behalf of, the Auditor-
General on financial and performance information presented in accordance with a fair
presentation framework to be expressed in the form of a dual opinion. The dual
opinion separately opines on:
(a) the fair presentation of the audited material; and
(b) whether the audited material complies with generally accepted accounting
practice in New Zealand and has been prepared in accordance with [the
applicable financial reporting framework].
A5. The Auditor-General has adopted the dual opinion approach because:
(a) preparation of the financial statements and performance information in
accordance with [the applicable financial reporting framework] does not
automatically mean that the audited information is fairly presented; and
(b) [the applicable financial reporting framework] does not adequately address
some important aspects of financial statements and performance information in
the public sector. The most prominent omission is in the area of performance
reporting.
A6. An example of a compliance framework in New Zealand is “Public Benefit Entity
Simple Format Reporting – Cash (Public Sector)”.
Use of template audit reports issued by the OAG (See paragraph 11)
A7. Example audit reports are provided in this statement, AG ISA (NZ) 705 (Revised), AG
ISA (NZ) 706 (Revised), on the Auditor’s Homepage, and in other directions issued
by the OAG from time to time.
Dating of audit reports (See paragraph 13)
A8. The financial and performance information on which the Appointed Auditor has issued
the audit report may be included in a subsequently published annual report.
Sometimes the annual report will be formally approved after the date that the financial
and performance information was approved. The date of the audit report does not
normally need to be changed solely because the date that the annual report was
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4807
approved is after the date that the financial and performance information was
approved.
Independence and the disclosure of relationships with, or interests in, the public entity in the audit report (See paragraph 14)
A9. Where the ASP does not have a relationship with, or interests in, the entity (other than
as auditor) the audit report should include a disclosure in the Independence section
that states:
“We are independent of the [entity type] in accordance with the independence
requirements of the Auditor-General’s Auditing Standards, which incorporate the
independence requirements of Professional and Ethical Standard 1 (Revised): Code of
Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board.
Other than the audit, we have no relationship with, or interests in, the [entity type].”
A10. AG PES 1 (Revised) permits the Appointed Auditor to distinguish between assurance
engagements and other engagements when reporting any “other” work in the audit
report. Appointed Auditors are requested to pay particular attention to the disclosures
made by the public entity in the note to the accounts that discloses the fees paid to
the auditor. The note is required to fully describe the nature of the other services
carried out by the ASP. Ideally the disclosure should separately distinguish fees
earned from assurance engagements from fees earned from non-assurance
engagements.
A11. Whether or not an Appointed Auditor makes a distinction between assurance work
and non-assurance work in the audit report is at their discretion. If the ASP has
carried out engagements for the entity in addition to the annual audit, and the
Appointed Auditor decides not to distinguish between assurance engagements and
non-assurance engagements in the audit report, the audit report may simply state:
“In addition to the audit, we have carried out engagements in the areas of [insert
description of engagements], which are compatible with those independence
requirements. Other than the audit and these engagements, we have no relationship
with, or interests in, the [entity type].”
A12. If the Appointed Auditor wishes to distinguish between assurance and non-assurance
engagements in the audit report, they should report this using the following reporting
format:
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4808
“In addition to the audit, we have carried out an assurance engagement in the area of
[insert description of engagement]. We have also carried out a non-assurance
engagement in the area of [insert description of engagement]. These engagements
are compatible with those independence requirements. Other than the audit and
these engagements, we have no relationship with, or interests in, the [entity type].”
Translation of audit reports
Translation of audit reports into M ori (See paragraph 17)
A13. The M ori Language Act 1987 established M ori as an official language of New
Zealand. Although the M ori Language Act 1987 enhances and promotes the use of
M ori, it does not require documents and reports to be written in M ori. If the annual
written
A14. Some public entities may request the audit report to be issued in M ori. A M ori
translation of the audit report can be provided by the OAG on request.
A15. The Auditor-General provides practical support where an entity requires an audit
report in M ori. M ori translations of standard unqualified audit reports are included in
some sections of the Auditors’ Homepage. Where a standard audit report in M ori is
not provided by the OAG, or the wording is “non-standard” (that is, it includes
additional wording such as an emphasis of matter paragraph or an other matter
paragraph or is modified), the Accounting and Auditing Policy Group will arrange for
the M ori translation to be completed and will meet the costs of the translation.
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4809
Appendix 1 – The Auditor-General’s Opinions Review Committee (ORC)
1.1 The objectives of the Auditor-General’s ORC are to:
- manage audit risk;
- provide assurance as to the consistency of non-standard audit reports; and
- ensure a consistent approach to major accounting and auditing policy issues.
Membership of the ORC
1.2 The ORC comprises the following members:
- the Assistant Auditor-General – Accounting and Auditing Policy as Chair;
- the Auditor-General;
- the relevant Sector Manager; and
- the Assistant Auditor-General – Legal.
1.3 A designated representative can be substituted for any of the above members.
1.4 The ORC will be convened as and when required by the Assistant Auditor-General –
Accounting and Auditing Policy. The Appointed Auditor may be asked to attend or be
available.
1.5 A quorum comprises the Assistant Auditor-General – Accounting and Auditing Policy,
the Auditor-General, the Assistant Auditor-General – Legal, and the relevant Sector
Manager.
Appointed Auditor procedures
1.6 It is preferable that issues be referred to the ORC as early as possible. This may be
before the financial and performance information is prepared for audit; for example,
an issue may become apparent at the planning stage.
1.7 If the Appointed Auditor is uncertain as to whether or not a matter should be referred
to the ORC, the Appointed Auditor should approach the Accounting and Auditing
Policy Group for advice.
1.8 The following information shall be submitted by the Appointed Auditor to the ORC at
least three working days before a decision is required:
- ORC checklist (see the end of this Appendix). Until all items required by
the ORC are received by the Accounting and Auditing Policy Group, the
submission will not be considered.
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4810
- A copy of the financial and performance information for annual auditthat has been audited (or is required to be audited). If the financial and
performance information for annual audit is not available, the latest available
information should be provided to enable the issue to be considered in
perspective.
- Outline of the issue(s) that may require a non-standard audit report. If
there is more than one issue, each issue should be addressed separately,
including the background, audit concerns, and the effect on the financial and
performance information.
- Technical support for the Appointed Auditor’s opinion. Technical support
includes financial reporting and auditing standards, other guidance issued by
relevant statutory and professional bodies, direction and advice from the
OAG, legislation, and any other relevant technical guidance as appropriate.
- The entity's view on the issue(s). The issue(s) and the potential effect on
the audit report shall be discussed, where appropriate, with the entity (at no
lower than chief executive level), and its position shall be clearly documented.
If the entity disagrees with the Appointed Auditor’s opinion, the rationale and
any technical support for the entity's view shall be provided. The onus is on
the entity to produce whatever technical support it believes is necessary to
justify its position. This support may range from seeking an opinion from its
own advisors to the Appointed Auditor simply recording (and considering the
reasonableness of) the entity's rationale. The Auditor-General does not
require the entity to obtain and pay for technical advice to support its position.
- A copy of the recommended audit report.
1.9 If the Appointed Auditor has seriously considered the validity of the going concern
assumption, the following information (in addition to the information specified above)
shall be provided in the Appointed Auditor’s submission to the ORC:
- consideration of the requirements of AG ISA (NZ) 570 (Revised);
- a budget for the next year;
- year-to-date financial and performance information;
- analysis of the entity’s working capital position and its ability to meet its
obligations as they fall due (this will normally include projected cash flow
information); and
- any other information relevant to the assessment of the going concern
assumption (for example, in the case of schools, historical and projected roll
information).
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4811
Procedures within the OAG
1.10 The ORC submission shall be referred to a member of the Accounting and Auditing
Policy Group, who will be responsible for checking for precedents, researching the
technical issues, and preparing a "technical report" for the ORC.
1.11 The ORC shall meet, discuss the submission and technical report, and reach and
document a consensus of opinion. This will usually be done within three days of
having received the complete ORC submission. If a consensus is not reached, then
the Auditor-General shall decide.
1.12 The ORC may, in addition to determining the wording of the audit report, decide to
carry out any one or any combination of the following:
- request the Appointed Auditor to include a comment in the management
letter;
- raise the issue in a letter from the Sector Manager or Auditor-General to the
governing body;
- inform any Responsible Minister, Ministry, or department of the issue;
- inform any other body (for example, a regulator) as appropriate; and
- report to Parliament.
The above list is not definitive. It indicates the types of action beyond the audit report that
the ORC may take in relation to audit findings. Other action shall only be taken after
consultation with the Appointed Auditor.
Notification of decisions to the Appointed Auditor
1.13 The Appointed Auditor will usually be advised in writing of the ORC's decision. If the
ORC’s decision differs from the Appointed Auditor’s recommendation, an explanation
and reasons will be given.
1.14 If an issue is of wider application, a general policy directive may be provided to the
Appointed Auditor and other parties.
1.15 Where the Appointed Auditor disagrees with the decision made by the ORC and is
unwilling to sign the audit report, the Appointed Auditor shall advise the Accounting
and Auditing Policy Group. The report shall then be signed by the Auditor-General or
a designated representative. This situation is highly unusual, and every effort will be
made to reconcile the positions of the Appointed Auditor and the ORC before such
action is taken.
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4812
1.16 The Auditor-General accepts full responsibility for any implications that may arise on
those matters reflected in audit reports signed by the Auditor-General (or a
designated representative) that depart from the audit report recommended by the
Appointed Auditor.
AG ISA (NZ) 700 (Revised) Forming and reporting an opinion
Issued 03/17 Office of the Auditor-General 3 - 4813
OAG ORC CHECKLIST
Public entity Name
Balance Date
Information included in submission to ORC Included
For all submissions to the ORC:
Copy of financial and performance information (including accounting policies
and notes).
Yes No
Outline of the issue(s). Yes No
Reference to technical support (that is, the appropriate financial reporting and
auditing standards).
Yes No
View of the entity on the issue and the proposed audit report. Yes No
Copy of the recommended audit report. Yes No
For submissions with issues of going concern
A budget for the next year. Yes No
Year-to-date financial and performance information. Yes No
Analysis of working capital position and ability to meet obligations as they fall
due. (This should include projected cash flow information.)
Yes No
Any other relevant details (for example, in the case of schools, historical and
projected roll information).
Yes No
Copy of the recommended audit report on summary financial and